Free Debt? Be Wary of Zero-Interest Deals

The Catch-22 of credit repair is lender appeal. The minute your credit improves, you are suddenly pre-approved for a myriad of credit cards offering large limits and zero percent interest for the first year. When you’ve spent months or even years working on credit repair, it may feel natural to say, “I deserve a little fun,” and give in to these seemingly harmless promotions. After all, what’s the harm in a zero-interest credit card? Read on for a few things to keep in mind.

Zero-interest may sound credit repair neutral, but it can cause problems if you’re not careful. Don’t sign up for a card if:

1. It’s a compulsion.

You know your limits when it comes to charging, and a credit card perk doesn’t change personal boundaries. A compulsion to spend is made more difficult when deals are involved. That’s when you begin to rationalize, saying, “I’m being responsible with this credit card,” or, “It’s zero-interest; I’m practically saving money!”

Let’s be real: Regardless of the interest rate, you should never spend if you cannot afford it, and you should never allow emotion to play a role in your financial stability. Credit repair is inevitable without self-control. Consult your budget and stick to your goals before allowing compulsion to take over.

2. It’s a habit.

Unlike a compulsion, “habit” sounds innocuous, but using a zero-interest credit card can become a problem if you do it too often.

Consider the following example:

Janelle opened a department store credit card to buy furniture last summer. The card came with an introductory rate of zero percent interest during the first year, allowing her to pay off the balance without accruing additional debt. Unfortunately, Janelle also signed up for a zero-interest Visa and Best Buy card within the next three months. She now has over $5,700 in debt, a sum she is unlikely to repay before her zero-interest window expires.

If you decide to utilize a zero-interest option, do it sparingly. Charging without the fear of accruing interest can make it sound easy, but a high balance still impacts your credit utilization ratio and puts you at a greater risk for credit repair in the future.

3. You have enough credit accounts.

A sudden perk can dampen the importance of long-term credit goals. If you already have a few credit cards, adding more to the mix can actually hurt your credit score. It may be tempting to take advantage of promotions, but that doesn’t make it wise. Talk to a credit counselor before deciding to open another account. Their insight will help you make the right decision.